School
Construction
and the New
“Best Value”
Contracting
Law
Peace Sign, Mosaic, Grade 10, East Grand Forks Senior High School
O
Over the years, school construction projects have moved from remodeling and additions to
expansive new high school campus projects exceeding $100 million. As the focus of public
construction has changed and costs have increased, some professionals involved in school design
and construction sought an alternative to Minnesota’s competitive bidding laws that would allow
public entities to receive the best value for the large sums of public monies expended for these
projects.
Shamus P. O’Meara
and Mark R. Azman
In 2007, the Minnesota Legislature passed a “Best Value” law that by 2010 will allow all school
districts to elect an alternative method for awarding construction contracts.
Best Value Contracting – Introduction
In contrast to the traditional “lowest bid” method of awarding contracts, Best Value permits public
owners to consider several factors in the evaluation and selection of potential contractors,
including price, quality and timeliness of prior work, technical capabilities, and customer
satisfaction.
School leaders are optimistic about the change. “Having gone through a number of multi-million
dollar construction projects, we welcome the chance to include the Best Value method as a
project delivery option,” said Mark Fortman, assistant director of Buildings and Grounds at West
St. Paul-Mendota Heights-Eagan. “With the Low Bid method, the cheapest price may not result in
the highest quality. On the other hand, the Best Value option will allow school boards to consider
a variety of factors when evaluating bids, which promotes the better use of tax dollars and the
increased opportunity to award public contracts to more qualified, competent and dedicated
contractors. We’ll be watching as the use of Best Value expands across the state.”
Lowest Responsible Bid – The Traditional Method
State and local public entities are generally required to award public contracts to the lowest
responsible bidders, depending on the project’s cost. This statutory and court-recognized
mandate requires public owners to conduct an objective evaluation of the responsiveness of the
bids, the responsibility of the bidders and the bid amount.
The evaluation of whether a low bidder is a “responsible” low bidder may include a review of the
bidder’s financial responsibility, skill, integrity, ability, and the likelihood of performing faithful,
prompt and satisfactory work.
8
MSBA JOURNAL
If an unsuccessful bidder
prevails in an action
challenging the validity of a
municipal contract,
damages are limited to the
costs of preparing the
unsuccessful bid. In
addition, a successful bid
challenge can result in a
determination that the
contract is void, and no
longer legally
enforceable.
THE PROS
AND CONS
OF BEST
VALUE CO
NTRACTIN
Advantages
G
Dis
- Ab
ility to evalu
advantages
capabilities an ate both technical
Subjective eva
d cost
lu
- Enhances ab
m
ore bid protest ation may cause
ility to select q
s/lawsuits
ualified - Re
contractors
quires public o
- Reduces dela
technical skill, wners to possess
ys
to evaluate bid time and resources
- Reduces cost
s
overruns/ chan
- Highly technic
orders
ge
evaluation diffial aspects make
- Promotes inn
cult
ovative design
P
o
te
n
ti
a
l
fo
r increased co
- Improves qua
sts
lity
E
li
m
in
a
tes/reduces co
- Improves cust
mpetition
omer satisfacti
on
Bonding – A Measure
of Protection
In Minnesota, three
bonds provide
protection to public
owners: Bid,
Performance and
Payment Bonds. Bid
bonds guarantee the
successful bidder will enter into the
contract and protect against losses from the bidder’s failure
to enter into the contract, including costs to re-advertise
and project delays. Performance bonds protect the public
owner against damages from the contractor’s failure to
properly complete the contract. Payment bonds protect
persons furnishing labor and materials from damages
arising out of the contractor’s failure to pay for such items.
bidding
as the method of contract
procurement. In general, if a public owner follows a
procedure “which emasculates the safeguards of public
bidding” or otherwise fails to comply with competitive
bidding laws, a public contract is void, even without a
showing of fraud.
Prequalification – Precursor to Best Value
The lowest responsible bid method is not without
drawbacks. Occasionally, contractors may submit low bids in
order to win public contracts only to later pursue excessive
or costly change orders. Also, the subjective difficulty with
determining the lowest responsible bidder and fear of bid
protests can prompt school districts to award to the low
bidder with little or no consideration of whether the low
bidder is the lowest “responsible” bidder.
The purpose of competitive bidding is to give all
contractors an equal opportunity to present a bid and
ensure taxpayers receive the best bargain. Mindful of this
purpose, a more acceptable approach may be to use
prequalification criteria within project bid specifications as
a means to evaluate “responsible” bidders. Nonetheless, it
remains an open question whether Minnesota appellate
courts will ultimately view prequalification as a permitted
practice.
School districts can even find themselves involved in
expensive litigation with bond sureties over termination
and payment issues involving a defaulted contractor. To
mitigate potential abuses and eliminate unqualified
contractors, public owners began to utilize prequalifying
and responsible contractor policies with greater frequency
over the last decade.
Best Value Contracting Explained
The “Best Value” procurement method provides school
districts and other public entities with a new alternative to
award public construction contracts. Best Value allows
public entities to award contracts based upon a variety of
factors that consider overall value and performance.
The goal of prequalification is to determine whether
potential contractors meet acceptable standards of ability,
experience, performance, integrity, and financial capacity
before being allowed to bid. In Minnesota, legal authority
supporting the power of a public body to utilize
prequalification procedures is unclear. Courts across the
country are divided on this issue.
In Minnesota, appellate courts considering challenges to
public bidding irregularities have explained the need for
public entities to properly comply with competitive bidding
laws once the decision is made to invoke competitive
“Although projects must continue to be publicly solicited,
and price remains a factor, Best Value may offer the
opportunity to better control costs, improve quality, deliver
projects on time, and lessen the adversarial relationship
between owners and contractors often found with the
lowest bid method,” said John R. Gockel, a civil engineer
and construction consultant.
Customer satisfaction is a critical goal for school districts.
“We’re hoping the use of Best Value will increase the ability
to successfully deliver the construction projects promised to
Continued on page 10
JANUARY/FEBRUARY 2008
9
Continued from page 9
School Construction and the New
“Best Value” Contracting Law
the citizens of the district,” notes Phil Belden, building
and grounds supervisor with Mahtomedi Public
Schools. “What this means to me is receiving high
quality workmanship at a competitive cost with less risk
of defects or other problems that may cause delays or
additional costs.”
Best Value contracting allows public owners to consider
not only price, but also a number of performance
criteria, which are found in Minnesota Statutes section
16C.02, subd. 4a:
Best value; construction. For purposes of
construction, building, alteration, improvement, or
repair services, “best value” describes the result
determined by a procurement method that
considers price and performance criteria, which
may include, but are not limited to:
• the quality of the vendor’s or contractor’s
performance on previous projects;
• the timeliness of the vendor’s or contractor’s
performance on previous projects;
• the level of customer satisfaction with the
vendor’s or contractor’s performance on
previous projects;
• the vendor’s or contractor’s record of
performing previous projects on budget and
ability to minimize cost overruns;
• the vendor’s or contractor’s ability to
minimize change orders;
• the vendor’s or contractor’s ability to
prepare appropriate project plans;
• the vendor’s or contractor’s technical
capacities;
• the individual qualifications of the
contractor’s key personnel; and
• the vendor’s or contractor’s ability to assess
and minimize risks.
These measures seek to reduce potential abuses by
forbidding post-bid changes to the weighting schedule
identified in the solicitation document in order to
select a favored contractor. Full disclosure of all
criteria and sub-criteria and their weighted ranking
also provides a standard of objectivity in a process that
will include the subjective evaluation of contractor
proposals. Public owners will find guidance in
procedures the state will establish.
The law is also careful to prohibit a public owner from
considering a contractor’s prior assertion of “legal
rights” as part of the evaluation of prior performance.
Training
School Districts administering Best Value procedures and
consultants retained to prepare or evaluate solicitation
documents must be trained in the Best Value process.
The Commissioner of Administration is empowered to
establish a training program, but no specific training
procedure has been promulgated to date.
Public owners may not use Best Value contracting for
more than one project annually or 20 percent of all
projects, whichever is greater, during the first three
fiscal years during which Best Value bidding is used.
I-35W Bridge Replacement Project –
A Best Value Test
In a highly publicized move, MnDOT utilized a Best
Value/Design-Build process for the I-35W Bridge
Replacement Project. A few days after the collapse,
MnDOT issued a Request for Qualifications which
resulted in the pre-qualification of five design-build
teams. Four of those teams submitted bid proposals in
two phases: a technical proposal and a financial
proposal.
This list represents sample criteria. The development
of discernible criteria and sub-criteria plays a key role
in communicating to potential sources a clear
understanding of the public owner’s basis of
contractor selection.
The winning bidder scored the highest technical score
by a significant margin, but its price proposal was also
more than $50 million higher than the lowest bidder
and its construction time was the longest. Evaluation of
the weighted criteria and subcriteria, however, resulted
in the selection of the bidder which reportedly
represented the “best value” to the state. The winning
bidder is a joint enterprise between two out-of-state
firms, one from Colorado and one from Washington.
Safeguards
In order to avoid issues of favoritism, and to include
transparency in the process, the Best Value law
includes safeguards. Two important safety measures
are the information that must be included in the
solicitation document and the evaluation process. The
Not surprisingly, a bid protest was commenced by two
of the losing bidders alleging the state’s actions were
arbitrary and capricious with the Minnesota
Department of Administration (DOA) reviewing the
bid protest. A key question addressed was “How does
the highest priced proposal with the longest
“Performance on previous projects” does not
include the exercise or assertion of a person’s legal
rights. * * *
10
solicitation document must state the “criteria to be
used to evaluate the proposals,” and the “relative
weight of price and other selection criteria.” The
award must be evaluated “in an open and competitive
manner,” and “must be made to the vendor or
contractor offering the best value applying the
weighted selection criteria.”
MSBA JOURNAL
MnDOT Best
Value Design –
Build Contracts
In 2001, the Legislature granted authority for
MnDOT to utilize the Best Value method. Since
2001, MnDOT reports that it has awarded six
Best Value Design-Build projects:
Highway 212 in the west Twin Cities Metro $238 million
ROC 52 in Rochester - $232 million
I-494 in the west Twin Cities Metro - $135
million
Highway 52 in Oronoco - $37 million
Highway 10/32 in Hawley - $8.6 million
District 4 Signs - $1.0 million
construction schedule end up in first place?” The answer,
DOA determined, was not found in MnDOT’s actions, but
with the statutory Best Value formula: “If a perception exists
that the state will be paying too high a premium for
technical excellence, the problem lies with the formula in
the [best value] statute, not with MnDOT’s
implementation. In fact, based on statute and language of
the [Request for Proposal], MnDOT is left with two choices
—award a contract to the top-ranked responder or reject all
responses. Even if MnDOT chose the latter, the statutory
formula would remain the same.”
Although “best value” involves more subjectivity than lowbid awards, the DOA did not find MnDOT’s actions
arbitrary and capricious. The award to the “best value”
contractor was affirmed, but a court challenge to the award
is currently underway.
University of Minnesota Pilot Program
The University of Minnesota gained legislative approval to
utilize the Best Value method in 2005. Based on the
University’s measured approach, the Best Value method has
proven to be a successful method of contract procurement.
Between 2005 and 2007, the University of Minnesota
utilized a pilot program to test a Best Value process
developed at the University of Arizona. The pilot program
involved 18 projects with 45 procurements valued at $10
million based on the Best Value method. Each project
averaged 3 proposals, and about half of the Best Value
awards were also the lowest cost. Of the 18 completed
projects, contractor-driven cost and schedule increases were
only 0.4% and 0.8%, respectively. Sixteen of the projects
had no contractor cost increases. The average increase in
contractor profit was 4.5%. Based in part on the success of
the pilot program, the University of Minnesota has decided
to integrate the pilot program into its standard selection
process.
Conclusion
It will take several years before the school and public
construction communities are able to substantively evaluate
the effectiveness of the Best Value method. Based upon the
success of projects undertaken by MnDOT and the
University of Minnesota, some may contend that Best Value
contracting offers a clear opportunity for school
communities and the general public to benefit from the
delivery of high quality construction projects at competitive
prices and on time.
Others may suggest the statutory Best Value criteria are
vague and redundant, and may hinder out-state and
non-union contractors from winning contracts, eliminate
competition, and drive up the costs of school construction
projects. The I-35W Bridge Project highlights concerns
about Best Value, and it will be closely followed as the bid
protest winds through the courts.
Shamus P. O’Meara is a partner with Johnson & Condon, P.A. in
Minneapolis practicing in complex Construction, Education,
Governmental and Transactional matters. He may be reached at
952-806-0438 or [email protected]. Mark R. Azman is a
senior associate with Johnson & Condon, P.A. Mark focuses his
practice on litigation and transactional matters in the Education,
Construction and Commercial Law areas. He may be reached at
952-806-0408 or [email protected]. Additional
information may be found at www.Johnson-Condon.com.
A Phased Approach
The ability of public bodies to utilize the Best
Value approach will be phased in over three
years:
PHASE I - JULY 1, 2007
State Agencies
Counties
Cities
School Districts with highest 25-percent
enrollment
PHASE II - JULY 1, 2009
Phase I entities
School Districts with the highest 50-percent
enrollment
PHASE III - JULY 1, 2010
Phase I and II entities
All other townships, school districts and political
subdivisions
JANUARY/FEBRUARY 2008
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